More research is needed to better understand the many aspects of the relationship between corporate governance and firm performance in emerging markets. Published research is limited. But, because emerging market firms are generally affiliated with multiple networks connected by formal or informal ties, the structures themselves present challenges for quantification and scientific data analysis.
Recent corporate governance research has been interdisciplinary, including law and finance research as well as investigation from organizational, management, and sociology perspectives. These studies reflect the importance of looking at corporate governance holistically to gain a better understanding of how drivers of “good” governance are supported or undermined by the institutional framework.
The guidance and recommendations presented in this paper must be framed within the overarching context of complexity. Firms need to engage in a more systematic outreach to minority investors to demonstrate how their own approach to governance addresses investor risks and concerns. Doing so could carry the benefit of reducing, or possibly eliminating, discounts that are often made on emerging market firms, reflecting both macro and micro governance concerns.
Also, institutional investors in emerging market firms should take greater responsibility for building a sustained dialogue with the boards and executive management of the firms they invest in. This means that investors should exhibit the patience necessary to take a long-term view and to work with firms to help them improve their governance standards—and ultimately their valuations, over time. This process of engagement has the potential to add value to firms and to investors.
Finally, the dialogue between academia and the investment community should improve further. This is where the Global Corporate Governance Forum has a role: supporting research on...